Interview: Tarik Tawfik
What recently enacted reforms have been most appealing to investors?
TARIK TAWFIK: Floating the Egyptian pound and lifting all measures that restricted foreign currency access were primarily the most significant measures, coupled with signing an agreement with the IMF that gave confidence to investors that our reform programme will be conforming to the liberal open market economy. Currency transferability and removing all currency restrictions was a big success.
Legislative reform happened at a fast pace, far exceeding our expectations, and included the new investment law, bankruptcy law, industrial licensing law, natural gas act, value-added tax (VAT) law and the food safety authority law, with the main objective of cutting through red tape and facilitating doing business in Egypt. It is worth mentioning that the industrial licensing law, once implemented properly, will lift the chokehold that bureaucracy has had on the economy. A new food law, developed with help from experts from the US Food and Drug Administration, will be a model law for the region.
How can Egypt attract more foreign investment in small and medium-sized enterprises (SMEs)?
TAWFIK: Egypt is inherently an SME country, but largely in the informal sector. This is why licensing laws, greater transparency in land allocation and the introduction of VAT will aid in the formalisation of SMEs and enable the private sector to function more cohesively. Foreign investment in key areas will unlock the potential of SMEs along with the rest of the value chain by acting as catalysts for demand. For example, the agriculture value chain is important to SMEs, but we also need investors to develop an infrastructure network for transportation, distribution and storage, as well as to modernise the retail sector, in which 99% of retail outlets are informal yet 1% command more than 20% of turnover.
Addressing value chain development with integrated policies will help increase investments and will result in expanding our export base. This is the new trajectory for the country, now made possible after floating the pound. Now Egyptian products can compete locally with imported products, which was not the case with an inflated Egyptian pound. Added to this is a second wave of reforms that tap into sectoral reforms, addressing red tape and cumbersome bureaucracy. This stage will be even more challenging than the first wave we just endured.
What can be done to increase Egypt’s attractiveness to US-based investors?
TAWFIK: More than 1200 US-based companies are already operating in Egypt, and most large firms are fairly well established. The last seven years saw political turmoil, an overvalued pound and limits on the repatriation of currency, but US companies did not shy away from the market. Now that these problems are being addressed, they are reinvesting in their local presence.
US companies, when competing on large projects in Egypt, were at a disadvantage, as the US government did not provide financing incentives and loan guarantees as their European counterparts did. Reactivating the US Export-Import Bank would definitely restore more favourable facilities to US firms.
Several concerns regarding the capacity of power generation have been mitigated. Egypt now has excess power covering our energy demand for years to come, and this notable in light of the most recent oil and gas exploration that is set to turn Egypt into a regional energy hub. Add to that the change in our energy policy that opened the door for investing in renewable energy with an aggressive feed-in tariff. Indeed, Egypt is building the biggest solar energy facility in the world, with the objective of having 20% of its energy portfolio in renewables by 2025.
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